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Euro up despite no sign of quick rescue fund deal Euro up despite no sign of quick rescue fund deal
(40 minutes later)
The euro has risen sharply, despite indications the eurozone rescue fund will not be increased any time soon.The euro has risen sharply, despite indications the eurozone rescue fund will not be increased any time soon.
The single currency gained more than a cent against the dollar on Tuesday morning to more than $1.34.The single currency gained more than a cent against the dollar on Tuesday morning to more than $1.34.
On Monday, German finance minister Wolfgang Schaeuble downplayed the need to increase the European Financial Stability Facility (EFSF) to pre-empt any debt crisis in Spain or Portugal.On Monday, German finance minister Wolfgang Schaeuble downplayed the need to increase the European Financial Stability Facility (EFSF) to pre-empt any debt crisis in Spain or Portugal.
European ministers will finish a two-day meeting on Tuesday.European ministers will finish a two-day meeting on Tuesday.
'Speculation''Speculation'
The EFSF was set up in May last year, and benefits from eurozone government guarantees for 440bn euros (£368bn; $590bn).The EFSF was set up in May last year, and benefits from eurozone government guarantees for 440bn euros (£368bn; $590bn).
But in order to maintain its maximum triple-A-rating, the fund is effectively limited to borrowing about just 250bn euros, which many investors fear may prove insufficient to fund any future bail-out of Spain.But in order to maintain its maximum triple-A-rating, the fund is effectively limited to borrowing about just 250bn euros, which many investors fear may prove insufficient to fund any future bail-out of Spain.
"Portugal doesn't want or need a bail-out at all," said Mr Schaeuble, speaking on German radio on Monday."Portugal doesn't want or need a bail-out at all," said Mr Schaeuble, speaking on German radio on Monday.
"There's enough funds for Ireland and the rest is speculation that is not being stirred up by anyone.""There's enough funds for Ireland and the rest is speculation that is not being stirred up by anyone."
Mr Schaeuble has however suggested his government may be willing to increase its guarantee for the fund so that it is able to lend the originally-intended amount.
The euro initially fell against most currencies on Monday in the immediate wake of Mr Schaeuble's comments.The euro initially fell against most currencies on Monday in the immediate wake of Mr Schaeuble's comments.
But has since quickly recouped all of its losses and pushed higher as speculation grows that an agreement will eventually be reached. But it has since quickly recouped all of its losses and pushed significantly higher against nearly all currencies as speculation grows that an agreement will eventually be reached.
Only the pound rose slightly against the euro, to 1.196 euros, due to higher-than-expected UK inflation data, which raised expectations of an interest rate rise in sterling.
'Broad' discussion'Broad' discussion
Jean-Claude Juncker, who is chairing the ministerial meeting, said that many options for bolstering the crisis response mechanism had been discussed, but none was favoured.Jean-Claude Juncker, who is chairing the ministerial meeting, said that many options for bolstering the crisis response mechanism had been discussed, but none was favoured.
"All of the ingredients of the solutions we have to form are on the table," he said. "The discussion was broad and will be narrowed in the next couple of weeks.""All of the ingredients of the solutions we have to form are on the table," he said. "The discussion was broad and will be narrowed in the next couple of weeks."
European monetary affairs commissioner Olli Rehn also sought to create an air of inevitability that a solution would be reached.
"We shall improve our current existing financial backstops so that the so-called market forces cannot even have the slightest doubt about our capacity to act even in the most stressed scenarios," he said.
Both the European Commission and the European Central Bank (ECB) have called for an increase in the size of the EFSF, as well as giving it new powers, such as the right to buy up eurozone government debt.Both the European Commission and the European Central Bank (ECB) have called for an increase in the size of the EFSF, as well as giving it new powers, such as the right to buy up eurozone government debt.
Since the Irish Republic was rescued by the fund late last year, markets have been reassured by the ECB's decision to step up its own purchases of eurozone government debts.Since the Irish Republic was rescued by the fund late last year, markets have been reassured by the ECB's decision to step up its own purchases of eurozone government debts.
This has also reduced the sense of urgency among policy-makers, particularly in Germany, which has sought to resist rushed decisions. Last week, the ECB seemingly confirmed its role in propping up the more financially stressed governments, by buying an unusually high 2.3bn euros in government debts ahead of a key bond auction in Portugal.
However, there are concerns at the central bank that its excessive involvement in supporting governments' finances is undermining its independence. But by putting a floor under bond prices, the ECB has also reduced the sense of urgency among policy-makers, particularly in Germany, which has sought to resist rushed decisions.
However, there are concerns at the central bank that by entangling itself in governments' finances, it is undermining its independence.
Penalty interest rate
Mr Juncker said ministers had also discussed the option of lowering the interest rate charged on bail-out loans.
The Irish Republic had to pay an average interest rate of 5.8% on its rescue loans - higher even than the 5.2% charged to Greece.
Some eurozone governments - notably Germany - wanted to charge an even higher penalty rate of up to 7%, to ensure that governments only seek a financial rescue as a last resort.
But by placing an additional burden on the finances of distressed governments, the high interest rate has also increased market fears that they will be unable to repay their debts from private-sector lenders.